Brown Brothers Harriman’s (BBH) Elias Haddad highlights that NZD/USD has surged over 2% on improved risk sentiment and a hawkish hold from the RBNZ. The central bank kept the OCR at 2.25% but signalled that temporary inflation would allow gradual normalization, while warning that decisive hikes would be needed if second-round inflation effects or higher medium-term expectations emerge, suggesting markets may be overpricing the pace of tightening.

RBNZ stance underpins New Zealand Dollar

"NZD/USD surged by over 2% on a solid rebound in risk sentiment. The RBNZ delivered a hawkish hold."

"The RBNZ noted that if the increase in near-term inflation is temporary, the OCR can be normalized gradually to more neutral levels (RBNZ estimated neutral range is between 2.3% and 4.1%)."

"The swaps curve has more than fully priced in a 25bps OCR increase to 2.50% by September and a total of 100bps of hikes over the next twelve months. The latest US-Iran ceasefire agreement reduces the risk of a more persist energy shock and argues for a more gradual RBNZ rate hike cycle than markets imply."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)